T-1234 Norwegian Climate Change Policy

Contents 1. Introduction 2. Report to the Storting (White Paper to the Norwegian parliament) No. 29 (1997-98) on Norwegian implementation of the Kyoto Protocol 3. Decisions made by the Storting 4. A domestic emissions trading system for greenhouse gases 5. The Norwegian CO 2 tax 6. Norwegian greenhouse gas inventories for 1990 and 1996, and projections up to 2010

1Introduction

Report to the Storting (White Paper to the Norwegian parliament) No. 29 (1997-98) on Norwegian implementation of the Kyoto Protocol was presented on 23 April 1998 by the Ministry of the Environment.

In this Report the Government presents its short-, medium- and long-term strategies to reduce emissions of greenhouse gases and to fulfil Norway's commitment under the Kyoto Protocol. Part 2 of this document is an English translation of the summary chapter of the Report.

On 17 June 1998, the Storting reviewed the Report on Norwegian implementation of the Kyoto Protocol as well as Proposition to the Storting No. 54 (1997-98) on Green Taxes, presented by the Ministry of Finance. On some points the Storting's decisions based on these documents differ from the Government's proposals. The decisions made by the Storting are presented in Part 3, while Part 4 presents the mandate for the commission of experts appointed by the Government to draw up a proposal for a domestic emissions trading system based on quotas for greenhouse gases. Part 5 gives an overview of the Norwegian CO2 tax rates from 1 January 1999, while Part 6 gives an overview of Norwegian greenhouse gas inventories for 1990 and 1996, and projections up to 2010.

2Report to the Storting*
on Norwegian implementation
of the Kyoto Protocol

Summary

The Kyoto Protocol - an important step towards meeting the threat of climate change

The danger of major climate change caused by human activity is perhaps the most serious threat the world has ever faced. According to the Second Assessment Report of the UN Intergovernmental Panel on Climate Change (IPCC), published in 1995, the global mean temperature is projected to rise by between 1 °C and 3.5 °C during the next 100 years. This would be the most rapid rise in the mean temperature for the last 10 000 years, and would result in the highest global mean temperature for 150 000 years. A temperature rise of this magnitude would result in a rise in sea level and changes in precipitation patterns and wind systems, which might have major effects on natural ecosystems and on socio-economic conditions.

The UN Framework Convention on Climate Change was adopted in May 1992 in Rio de Janeiro, and provided an essential foundation for further international efforts to counteract climate change. It entered into force in 1994, and the following year the "Berlin mandate" was adopted as terms of reference for further negotiations to strengthen and elaborate the commitments of industrial countries, i.e. the OECD countries and countries undergoing the process of transition to a market economy. As a result of the negotiation process, a Protocol under the Climate Convention was adopted in Kyoto on 11 December 1997.

The adoption of the Kyoto Protocol was a historic step forward in a global context. It is a legally binding agreement that elaborates and quantifies the commitments of industrial countries under the Climate Convention. Some elements of the Protocol will have to be developed during subsequent international negotiations, in the first instance those leading up to the 4th Conference of the Parties (COP) under the Climate Convention, which is to be held in Buenos Aires in November 1988. Nevertheless, the Protocol includes more than could have been expected before the Kyoto conference. It also sets out innovative principles that will provide an important basis for further negotiations. Talks on commitments for the period after 2012 will begin by 2005.

Although the Kyoto Protocol represents an important step forward for international climate policy, it is not in itself an ambitious enough response to the challenges the world is facing as regards climate change. It will be necessary for the industrial countries to make greater reductions in emissions, and for the developing countries, for which the Protocol does not currently contain commitments to limit emissions, to undertake such commitments.

* White Paper to the Norwegian parliament No. 29 (1997-98) presented on 23 April 1998

The main elements of the Kyoto Protocol are as follows:

• A commitment by the industrial countries to reduce their aggregate emissions of greenhouse gases by at least 5 per cent below 1990 levels between 2008 and 2012.
• Commitments to reduce overall emissions of the six most important greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). Net changes in removals of greenhouse gases by sinks resulting from direct human-induced measures since 1990 may be used in calculating national emission levels.
• Differentiation of the quantitative commitments undertaken by industrial countries.
• Opportunities for Parties to fulfil their commitments jointly (known as the "bubble" proposal).
• Opportunities for joint implementation projects between developed countries.
• Opportunities for emissions trading between industrial countries.
• The establishment of a clean development mechanism, providing opportunities for industrial countries to finance projects to reduce emissions in developing countries and be credited with emission reductions for such projects in their own emission inventories.
• Use of flexible implementation mechanisms (joint implementation projects between industrial countries, emissions trading and the clean development mechanism) shall be a supplement to national measures.
• Each industrial country shall have made demonstrable progress in achieving its commitments by 2005.

According to the Kyoto Protocol, Norwegian greenhouse gas emissions may not be more than one per cent higher in the period 2008-2012 than in 1990, when they totalled 55.2 million tonnes CO2 equivalents. This means that emissions must be reduced by about 3 million tonnes CO2 equivalents compared with the 1996 level, and about 12 million tonnes CO2 equivalents compared with the projected figure for 2010 (based on the assumptions that no new measures are introduced and the two planned gas-fired power plants are built). The EU (which will divide its overall commitments to reduce emissions among member countries), Switzerland and several Central and Eastern European countries are to reduce emissions by 8 per cent, the USA by 7 per cent, and Canada, Japan, Hungary and Poland by 6 per cent. Russia, Ukraine and New Zealand are to stabilise their emissions (0 per cent reduction). Emissions by Australia and Iceland may rise by 8 per cent and 10 per cent respectively in the same period. The reasoning behind differentiation of countries' quantitative commitments was that this would distribute the burden of meeting commitments under the Protocol equitably between countries. The costs incurred by OECD countries in meeting their commitments are expected to vary much less widely than if the agreement had been based on equal percentage reductions.

The Protocol is not legally binding until it has entered into force. It enters into force ninety days after at least 55 Parties to the Convention, including industrial countries that accounted for at least 55 per cent of total carbon dioxide emissions from industrial countries in 1990, have ratified the Protocol.

National strategy

After Kyoto, countries are no longer free to allow unlimited emissions of greenhouse gases. For the first time, specific commitments to limit emissions have been formulated, and in future there will be costs associated with the generation of emissions. All industrial countries (Annex B countries) will therefore have to alter their production and consumption patterns. We must make a critical examination of energy use, materials use, production processes, waste management and transport. During the past 150 years, labour efficiency has risen by a factor of twenty. We now need a similar development in how efficiently we use resources. This is particularly important as a means of giving the poorest countries an opportunity to strengthen their economies while not exceeding the carrying capacity of nature. If we are to succeed in this task at national level as well, all sectors of society must be willing to take a share of the responsibility, and we must all use our creativity and expertise in a concerted effort to bring about change.

The Kyoto Protocol is an important step in the right direction, but to deal with the challenges described in the Climate Convention will require more comprehensive action. In view of this, we should expect considerably more ambitious results than those set out in the Kyoto Protocol from the next round of negotiations, on commitments for the period after 2012. After this, new rounds of negotiations will be needed to ensure that further action is taken to limit global greenhouse gas emissions in subsequent commitment periods. In the long term, the introduction of new technology may reduce the costs of reducing greenhouse gas emissions from certain activities. At the same time, countries that make the necessary response at an early stage can gain an important technological lead. In the long term, we must be prepared for more stringent requirements to reduce or limit emissions, and for an increase in the cost of limiting greenhouse gas emissions.

The Government will emphasise two dimensions of Norway's adaptation to a new climate policy situation. Firstly, steps will be taken to introduce the solutions needed to meet Norway's commitments under the Kyoto Protocol. Secondly, policy development will take into consideration the long-term perspective and the probability that we will have to meet stronger commitments after 2012. By taking the long-term view in developing national policy instruments right from the beginning, we can lay the basis for long-term investments that are sound in both socio-economic and environmental terms, and that will not result in unnecessarily high emissions for a long period of time. This approach can also give Norwegian industry an important competitive advantage, since all industrial countries will inevitably have to respond to the threat of climate change.

The issue of reducing greenhouse gas emissions is closely bound up with how much energy we use, how it is used and which energy source is used. In the long term, it will be necessary to reorganise the energy sector, both globally and nationally. In global terms, there is a need for gradual decarbonisation of the fossil fuel-based energy system and for a stronger focus on energy efficiency measures and renewable energy sources. However, the world's energy supplies will continue to be dominated by fossil fuels in the foreseeable future. In deciding which measures to implement, it is therefore important to ensure that the need for stable long-term global energy supplies is taken into account.

There is now a substantial trade in electricity between Norway and several neighbouring countries, and this is being further developed. Since all the countries involved will have to meet commitments under the Kyoto Protocol, the electricity trade will not affect overall greenhouse gas emissions from the region, but may help to reduce emissions from the electricity sector. There may therefore be a case for these countries to develop cooperation on their energy and climate policies in order to reduce the total costs incurred by the region in meeting its commitments under the Protocol.

Norway is in a special position in that renewable energy sources supply 70 per cent of stationary energy use. We must now ensure that we can continue to supply a large proportion of the demand for stationary energy from renewable sources. However, we cannot expect further hydropower development to provide satisfactory energy supplies.

New renewable energy sources such as wind power, bioenergy and solar energy must play a more important role in energy supplies in the future. This is in accordance with the goal that in a normal year, Norway should produce sufficient electricity from renewable energy sources to cover domestic electricity consumption. In addition, long-term planning should stimulate a more energy-efficient development pattern as regards energy supplies and transport.

We must begin to introduce policy instruments and measures to start the reorganisation process now, and prevent investments in the energy sector that will have undesirable long-term effects. The response to climate change cannot be postponed, but instruments and measures must be phased in gradually in order to achieve the ultimate goals related to emissions and energy use. Growth in energy use must be curbed and in the long term energy use must be stabilised.

Norwegian implementation of the Kyoto Protocol

Norwegian greenhouse gas emissions (excluding sequestration of CO2 in forests) are expected to increase from about 55 million tonnes CO2 equivalents in 1990 to about 68 million tonnes CO2 equivalents in 2010 if no new measures are introduced. This includes emissions from the two planned gas-fired power plants at Kårstø and Kollsnes in Western Norway, and corresponds to an increase of 23 per cent, including emissions of 2.1 million tonnes CO2 from the planned power plants.

The choice of policy instruments to meet Norway's commitment under the Kyoto Protocol must be made on the basis of several considerations. Firstly, the polluter pays principle is important. The instruments chosen must also be efficient, so that we are reasonably certain that Norway's international commitments are in fact met. Furthermore, these commitments must be met by cost-effective use of policy instruments across sectors, gases and countries, and by applying a strategy that includes both measures to reduce emissions and measures to enhance sinks of greenhouse gases. Various other considerations must also be taken into account.

Until now, Norwegian use of policy instruments to limit greenhouse gas emissions has been planned for a situation without any legally binding commitments to reduce emissions. This has changed with the adoption of the Kyoto Protocol. Policy instruments must now be chosen and their application adjusted to reflect environmental costs and to ensure that Norway's commitment under the Kyoto Protocol and the Government's climate policy goals are achieved.

Within a relatively short space of time (2-5 years), the Government proposes to introduce instruments that will act as an incentive to carry out the least costly national measures to combat climate change. In the longer term, up to the end of the first commitment period (which runs from 2008 to 2012), the scope of policy instruments must be gradually expanded. The Government will return to the subject of other instruments that will be needed to meet its commitment under the Kyoto Protocol at a later date.

Experience in the application of the policy instruments that are to be introduced now, including the use of flexible implementation mechanisms and experience gained by other countries, will be used as a basis for evaluating the most appropriate instruments for long-term climate policy. The evaluation will include analyses of the advantages and disadvantages of a domestic system of emissions trading for greenhouse gases.

Up to 2012, Norway's minimum goal must be to meet its commitment under the Kyoto Protocol. In the long term, the introduction of new technology may reduce the costs of reducing greenhouse gas emissions from certain activities. However, any investments made now that are sound in both socio-economic and environmental terms should have an effect on emissions by 2012. Policy instruments must be designed and phased in so that our commitment under the Kyoto Protocol is met at the lowest possible cost, and so that they also act as an incentive towards the more long-term structural changes that will be necessary to meet new, stronger commitments for periods after 2012.

Introduction of green taxes

The most important climate policy instrument will be a shift in the burden of taxation towards green taxation. This includes raising taxes on pollution and environmentally harmful forms of energy and reducing taxation of labour and income. The effect will be to make environmentally-friendly choices more attractive in the everyday lives of individual consumers, in production processes and in making decisions about energy forms, transport structure and various other issues.

Taxation will be the most important instrument for the reduction of CO2 emissions. To improve cost-efficiency, the Government proposes to widen the tax base by introducing a tax of NOK 100 per tonne CO2 emissions in sectors that are currently exempt, cf. Proposition No. 54 (1997-98) to the Storting on Green Taxes. To ease the adjustment process for some branches of industry, the Government proposes that companies in the processing industry should receive compensation for the tax for inputs used as reducing agents and raw materials. The level of compensation will be gradually reduced. The Government also proposes that the fishing fleet and air transport should receive compensation for extra costs related to the CO2 tax. Current CO2 taxes on petrol and petroleum activities on the continental shelf will continue to apply at the same rate, which is high compared with the rates in other countries. The exemption for gas used for transport purposes will continue to apply.

Taxes should also be used as an instrument to control emissions of other greenhouse gases where appropriate. In order to reduce methane emissions, the Government proposes a tax of NOK 300 per tonne on the final disposal of waste (by incineration or landfilling), cf. Proposition No. 54 (1997-98) to the Storting. The tax rates should vary depending on the degree of energy recovery from waste. The Government will also consider the introduction of a tax on HFCs, and will review in more detail the appropriate modalities of such a tax.

Calculations suggest that the CO2 tax rates proposed for 1999, including the compensation schemes, will reduce the growth in emissions up to 2010 by about one percentage point, from 23 to 22 per cent. In addition, the tax on final disposal of waste is expected to reduce the growth in emissions by a further two percentage points by 2010. The Kyoto Protocol only permits states to credit a limited proportion of carbon sequestration in forests. For Norway, this is expected to correspond to emission reductions of 0-1 percentage points.

The wide variation in tax rates means that the full potential of taxes as a cost-effective policy instrument has not been exploited, either across sectors or across gases. Thus, in sectors that are exempt or where the tax rate is low, relatively low-cost measures will not be carried out. To improve cost-efficiency and to ensure that Norway's commitment under the Kyoto Protocol and the Government's climate policy goals are achieved, the Government intends to supplement taxes with other policy instruments.

The Pollution Control Act

Greenhouse gas emissions come within the scope of the Pollution Control Act. The Government proposes that greenhouse gas emissions from major point sources should be subject to individual licensing. This applies to large process emissions of CO2, N2O, PFCs and SF6, and major energy-related emissions. Further evaluation is required to determine which sources should be subject to licensing and which would be more appropriate to control by means of regulations. Emissions from certain smaller point sources should also be subject to individual treatment, as is the case for methane emissions from landfills.

Further consideration will be needed of the types of conditions which should be laid down in licences or regulations and how strict they should be, taking into account the use of other instruments, such as the CO2 tax and voluntary agreements of limited duration. A catalogue of measures to reduce emissions will be drawn up and will provide part of the basis for decisions on how to use the Pollution Control Act. Licensing will be particularly suitable in cases where taxation is not appropriate. For new projects that are dealt with before the catalogue is complete, the conditions set may require measures that are less costly than the highest CO2 tax rate.

Voluntary agreements

The Government intends to enter into voluntary agreements with industry in sectors where agreements are expected to give greater reductions than the use of other instruments. The agreements should be of limited duration. They will be particularly appropriate where the number of enterprises involved is limited and new technology needs to be developed, and where the latter process involves a certain level of technical and financial risk.

Land use planning

Long-term land use planning is based on decisions made pursuant to the Planning and Building Act. It is important to ensure that climate policy considerations are taken into account in long-term planning, particularly with a view to creating less energy-intensive structures. It is also necessary to take into consideration the importance of the scattered pattern of settlement for utilisation of Norway's natural resources.

Grant schemes

Grant schemes funded through the state budget should be used for research and development, pilot projects, the introduction of innovative products and to put into effect measures that will be of socio-economic benefit but are not profitable for the company or individual, or which involve a high risk.

Research and development

Research and development and the introduction of environmentally-sound technology will play a central role in further efforts to implement the Kyoto Protocol. In addition to ongoing work in industry, consultancy firms and research institutions, the authorities are taking steps to encourage such research through climate-relevant research programmes run by the Research Council of Norway. In many sectors, research and development relating to environmental technology may help to reduce costs in the longer term, once the green tax reform has been established.

Local Agenda 21

Local Agenda 21 work will be an important element of efforts to achieve our climate goals. Special emphasis must be given to areas where there is a clear connection between local action and global consequences. Local Agenda 21 work will be especially important as a means of demonstrating how decisions by individuals, households and local communities to use environmentally-sound options in their everyday lives make an essential contribution to implementation of the Kyoto Protocol. Consumption and energy use, land use planning and transport are the areas that must be kept in focus at local level as well. It will be particularly important to give the municipalities more responsibility for planning energy use and heating solutions in order to ensure more efficient energy use and reduce the growth in energy use.

Sectoral environmental action plans

Another important task is to encourage the various sectors to carry out measures to reduce emissions and to find creative solutions. Norway's cross-sectoral environmental policy will be strengthened by the introduction of sectoral environmental action plans and further development of a national result monitoring system. These proposals are in line with Report No. 58 (1996-97) to the Storting on an environmental policy for sustainable development, and build further on its proposals.

Products in a "cradle-to-cradle" perspective

The Government will promote the development of eco-efficient products, which have less environmental impact throughout their life cycles. To ensure that the public sector also takes steps to reduce the use of fossil energy and improve waste management, the Government will carry out a project called "Green State". This will include various measures to reduce energy use and make wider use of new renewable energy sources in public buildings under the auspices of the Directorate of Public Construction and Property and other government agencies.

The right to information on the environment

In climate policy, as in other contexts, it is important that people in general actually wish to lessen the environmental impact of their lives and are given opportunities to make environmentally sound choices. The provision of better information on the state of the environment and a shift in the burden of taxation will be important means of achieving this. The Government has decided to appoint a committee to review Article 110b of the Norwegian Constitution, which deals with the right to receive and the duty to provide information on the state of the environment, and consider effective and practical ways of implementing it.

Flexible implementation mechanisms

The Government proposes that Norway should make active use of flexible implementation mechanisms to reduce the overall costs of meeting our national commitment under the Kyoto Protocol. However, in accordance with the provisions of the Protocol, the use of flexible implementation mechanisms will be a supplement to national measures. A large proportion of the reduction in Norway's emissions will have to be made within the country. The use of flexible implementation mechanisms may reduce the costs of fulfilling Norway's commitment for the period 2008-2012, but there is considerable uncertainty as to the cost of reductions outside Norway's borders.

The Government would like to see active participation by Norwegian business and industry in the use of flexible implementation mechanisms. However, as a party to an international agreement, the state must ensure that it has the necessary control of the use of these mechanisms. The form such participation should take will be further reviewed in relation to the use of national policy instruments.

Energy

Within the energy sector, general policy instruments such as the CO2 tax and higher taxes on electricity will encourage more efficient use of fossil fuels and electricity, and strengthen the competitive position of new renewable energy sources. The CO2 tax does not apply to bioenergy installations, since these do not result in any increase in net emissions of CO2. Higher CO2 tax and electricity taxes should be considered as a means of slowing and then stopping the growth in energy use and reducing greenhouse gas emissions, cf. Report No. 58 (1996-97) to the Storting. The Government will review tax rates and the tax base for fuel oils and electricity in more detail in connection with the 1999 state budget.

Higher taxes on energy will be considered to promote the necessary restructuring of the energy sector, but these will not be sufficient unless supported by other instruments. The Ministry of Petroleum and Energy will submit a report to the Storting in spring 1999 which will contain an overall evaluation of Norway's energy policy and of the measures needed to fulfil Norway's commitment under the Kyoto Protocol and ensure satisfactory energy supplies up to the year 2020. The report will also present an action plan describing a strategy for effective energy use and greater use of renewable energy sources. Proposals for further measures in various fields will be evaluated, and specific measures in the following areas will be given priority in the annual budgets:

• information and advice on efficient energy use and awareness-raising measures
• development of expertise among energy users in the public and private sectors
• steps to give higher priority to knowledge and expertise in energy-efficient technologies and renewable energy in important professions through the educational system
• introduction of requirements for the planning of energy use and heating solutions in counties and municipalities by providing legal authority in the appropriate legislation
• requirements for energy efficiency and heating systems in new buildings in the private and public sectors
• norms, standards and certification systems for energy-efficient installations and for energy use
• measures to promote the introduction of renewable energy sources such as wind power, bioenergy, solar power, heat pumps and energy recovery
• research and development work on renewable energy sources and energy-efficient technology
• establishment of electricity and heating markets for new renewable energy sources in cooperation with trade and consumer organisations.

Proposition No. 54 (1997-98) to the Storting proposes that wind turbines, bioenergy installations and heat pumps should be exempt for investment tax. A state grant to wind turbines corresponding to half the current tax on electricity consumption is also proposed.

Gas-fired power plants

The Government's view as regards gas-fired power plants has been strengthened by the commitments to limit greenhouse gas emissions set out in the Kyoto Protocol. If the planned gas-fired power plants are built, it will be even more difficult for Norway to meet its commitment under the Kyoto Protocol. The Government will take steps to ensure that the regulatory framework reflects the long-term environmental costs to society of establishing land-based installations for energy production and transport, in the same way as for other activities. From 1999 onwards, such installations will be subject to a tax of NOK 100 per tonne CO2 emissions, cf. Proposition No. 54 (1997-98) to the Storting. In the Government's view, both environmental taxes and legislation should be used to determine the operating conditions for gas-fired power plants. The aim should be to ensure that the overall use of policy instruments reflects the long-term environmental costs of establishing such installations. Taking into account the need to fulfil Norway's commitment under the Kyoto Protocol and long-term energy policy, the Government recommends that the two planned power plants at Kårstø and Kollsnes should not be constructed using currently available technological solutions.

The Government's standpoint is based on the assumption that in the long term, environmental standards will be made so much more stringent that it is essential to start a major shift towards renewable energy and restrictions on consumption immediately. The introduction of wind power, bioenergy and heat pumps has reached a stage where signals concerning long-term energy policy can have an influence on the willingness of companies to invest in such technology. The introduction of electricity generated from gas as an energy source might tend to postpone the necessary restructuring of the energy sector. Instead, the Government intends to give greater priority to energy efficiency measures, renewable energy sources and the use of heat pumps.

Petroleum activities on the continental shelf

Combustion and flaring of gas and diesel as part of petroleum activities on the Norwegian continental shelf are currently subject to the highest rate of the CO2 tax, about NOK 380 per tonne CO2. In Proposition No. 54 (1997-98) to the Storting, the Government proposes that oil and gas terminals on land should also be subject to a tax of NOK 100 per tonne CO2 from 1999. Emissions of CO2 from mobile drilling rigs and indirect CO2 emissions from loading of crude oil on the continental shelf are not subject to the tax, because of difficulties in measuring such emissions. As the industry continues its efforts to bring about further reductions in emissions and achieve the goals that have been set, for instance through the MILJØSOK project, it will be important to maintain the drive to mobilise the capacity and will to find creative solutions. In this connection, the Government notes with satisfaction that the industry is now also focusing on the development of new, innovative technology and measures to facilitate its introduction, even when such solutions may not be cost-effective under current operating conditions. Such efforts are important in the development of cheaper, environmentally sound solutions. They are also in line with the industry's goal in the context of MILJØSOK, which is to achieve more than the minimum requirements set by the authorities.

Transport

In the transport sector, both petrol and auto diesel are subject to the CO2 tax. For petrol, the tax rate is about NOK 380 per tonne CO2, and for auto diesel it is about NOK 170 per tonne. Emissions from modes of transport that use other types of fuel have until now generally been exempt for the CO2 tax. In Proposition No. 54 (1997-98) to the Storting, the Government proposes the introduction of a CO2 tax of NOK 100 per tonne on such emissions, with the exception of gas used as a fuel in motor vehicles and ferries, which will continue to be exempt. The CO2 tax and other taxes on fuels and vehicles will be instrumental in limiting CO2 emissions from transport activities by reducing the volume of traffic and encouraging the use of more energy-efficient modes of transport. Through pilot projects, the Government is seeking to promote a changeover to alternative fuels that generate lower emissions. Other policy instruments that are primarily intended to deal with issues such as local environmental problems will also play a role in limiting greenhouse gas emissions from the transport sector. The Government is working on the further development of locally-adapted instruments such as coordinated land-use and transport planning, road pricing and instruments to improve public transport systems.

Shipping and fisheries

The shipping industry is international in character. As a major shipping nation, Norway wishes to play a catalytic role in the development of international environmental and safety requirements for shipping. The Kyoto Protocol requires the parties to work through the International Maritime Organisation (IMO) to reduce greenhouse gas emissions from shipping. Norway will follow up this matter actively within the IMO, and will propose measures and instruments that can reduce emissions from the shipping industry.

Proposition No. 54 (1997-98) to the Storting proposes the introduction of a CO2 tax of NOK 100 per tonne CO2 on domestic sea transport. The Ministry of the Environment is reviewing options for differentiating taxes paid by shipping according to various environmental criteria. The use of CO2 emissions from shipping as one of these criteria is to be considered.

Forestry

The Kyoto Protocol also permits parties to credit a limited proportion of sequestration of carbon in forests to meet their commitments. The agricultural authorities in Norway have for many years used a range of instruments to promote forest management measures such as replanting after felling, planting different species and afforestation. However, the scope of various grant schemes has been reduced during the past 20 years. The Government is therefore prepared to evaluate grant schemes for climate measures involving activities that can be credited under the Protocol, provided that they encourage cost-effective measures that do not lead to conflict with other environmental interests.

Plans for phasing in policy instruments

Table 1 summarises the Government's proposals for phasing in policy instruments towards the period 2008-2012 to fulfil Norway's commitment under the Kyoto Protocol. A distinction has been made between instruments that are to be phased in during the next 2-5 years and the expansion of their scope that will be necessary in the longer term. The proposed instruments can reduce the growth in emissions by a total of 3.5-5 million tonnes CO2 equivalents, which corresponds to reducing the growth in emissions from 23 per cent to 14-17 per cent. Any reductions brought about by instruments to reduce HFC emissions will be additional to this. The effects of flexible implementation mechanisms are not included in these figures, nor is the effect of reversing the decision to build the two gas-fired power plants which may reduce emissions by a further 2.1 million tonnes or 4 percentage points compared with the Norwegian reference scenario.

One of the goals expressed in a joint statement by the coalition parties in October 1997 before they took office was that Norway's greenhouse gas emissions should be reduced to the 1989 level by 2005. This would mean that Norway would fulfil its international commitment before the date required by the Kyoto Protocol. In the Government's view, it is a reasonable course of action to start the necessary changes required to meet current and future commitments relating to climate at an early date. Indeed, the Protocol lays down that each industrial country shall, by 2005, have made demonstrable progress in achieving its commitments under the Protocol. The Government will at a later date evaluate the need to expand the use of policy instruments in other contexts, for instance in its reports on the state of the environment.

Norway's economy will be influenced by the Kyoto Protocol, partly because Norway has undertaken to limit its national greenhouse gas emissions, and partly because the value of Norway's net energy exports will be reduced. The overall cost of meeting Norway's commitment will include the costs of measures implemented in Norway, restructuring costs, the costs of joint implementation projects and the costs of buying emission quotas abroad.

The Government intends to implement its climate policy gradually. The macro-economic effects of the proposed short-term instruments are expected to be small. However, in order to meet Norway's international commitment, it will be necessary to implement stronger policies and measures. In the longer term, the costs of the agreement for Norway are uncertain, since there is a degree of uncertainty in projections of emissions, the costs of climate measures and developments in oil and other prices. It is also uncertain what savings can be made by means of flexible implementation mechanisms.

3Decisions made by the Storting

On 17 June 1998 the Storting reviewed both Report to the Storting No. 29 (1997-98) on Norwegian implementation of the Kyoto Protocol and Proposition to the Storting No. 54 (1997-98) on Green Taxes and decided the following:

• From 1 January 1999, a CO 2 tax of NOK 100 per tonne of CO 2 emissions will be applied to mineral oils used in air traffic, by domestic shipping and supply ships, and offshore petroleum installations. Major industrial sectors as well as gas used in the transport sector will still be exempt from the CO 2 tax. (The CO 2 tax has so far provided the main means of reducing CO 2 emissions and, under the current system, about 60% of CO2 emissions in Norway are subject to this tax, including emissions from the petroleum industry.)
• The Government was asked to draw up a proposal for a domestic emissions trading system for greenhouse gases. This system should at least apply to the processing industry, which is currently exempt from the CO 2 tax, but the possible inclusion of other sectors should also be considered. (On 23 October 1998, a commission of experts was appointed to devise such a system. See Part 4.)
• A tax on the final disposal of waste, in order to increase energy recovery and reduce emissions of methane from landfills, will be introduced on 1 January 1999, with tax rebates for energy utilisation. The tax rates adopted are the following: 1. Landfills: NOK 300 per tonne of waste 2. Incinerators: a) basic charge: NOK 75 per tonne of waste b) additional charge depending on the degree of energy recovery: NOK 0-225 per tonne of waste
• Wind turbines, bioenergy, heat pumps, district heating and micro and mini hydropower stations shall be exempt from investment tax. A state grant to wind turbines corresponding to half the current tax on electricity consumption will be introduced.

Additional measures proposed by the Government and approved by the Storting are presented in Part 2.

4A domestic emissions
trading system for
greenhouse gases

Having reviewed Report to the Storting No. 29 (1997-98) on Norwegian implementation of the Kyoto Protocol and Proposition to the Storting No. 54 (1997-98) on Green Taxes, the Storting made the following decisions:

a)

The Storting requests the Government to appoint a broad-based commission of experts to draw up a proposal for a domestic emissions trading system for greenhouse gases using quotas and based on the Kyoto Protocol. The commission's mandate shall be based on the Storting's guidelines. The Government's proposal for an emissions trading system shall be presented to the Storting.

b)

Emissions that are subject to regulation through emissions trading shall not be subject to taxation.

c)

Emissions that are subject to regulation through emissions trading shall not be regulated by the Pollution Control Act.

On 23 October, the King in the Council of State appointed a commission with the following mandate:

The commission shall devise a domestic emissions trading system for greenhouse gases using quotas and based on the Kyoto Protocol. The remarks in Recommendation to the Storting No. 247 (1997-98) indicate that the following guidelines have the support of a broad majority of the Storting's members as a basis for the commission's work:

• The emissions trading system shall at the minimum apply to those branches of industry that are at present exempt from CO2 taxes. These include the metallurgic industry, gas-fired power plants, the production of cement and composite building materials, the petrochemical industry, oil refineries and transport and processing installations for crude oil. The commission should also assess how other sectors could be included, and how this could be done without reducing government revenues.
• The system should apply to all greenhouse gases listed in the Kyoto Protocol. Quotas should be allocated on the basis of the 1990 level .
• Emission reductions should be made obligatory for branches of industry currently exempt from the CO2 tax by allocating quotas. Reductions should be in the region of 30 per cent compared to the 1990 level. The more extensive the emissions trading system is, the larger emission reductions could be. The commission should look at ways to prevent discrimination of enterprises that have already taken steps to reduce the environmental impact of their activities.
• Newly-established enterprises will have to base their emissions on quotas bought through the domestic emissions trading system or use the flexible implementation mechanisms. The commission will clarify how this principle will be implemented.
• The quotas should be allocated on a long-term basis, but for a defined period. Banking of quotas for later use must, however, be allowed. It must be possible for the authorities to make emission requirements more restrictive to meet new international commitments. Limitations will be imposed on the right to sell quotas in connection with the closure of an enterprise.
• The domestic emissions trading system should be linked to an international emissions trading system, joint implementation and the clean development mechanism. These instruments must be utilised within an approved international regulatory framework.
• The allocation of domestic quotas must be open and transparent. The commission must develop rules to ensure a well-functioning market where there is no possibility of manipulation or exploitation of market power.
• The emissions trading system should be devised in active dialogue with the social partners.

These guidelines from the Storting will constitute the basis for the commission's work.

The issue of which sectors and gases to include in the emissions trading system should be considered in light of the unreliability of emission data, the importance of a well-functioning quota market and of ensuring that all the various policy instruments to reduce greenhouse gases are effective in total. If some sectors are included in a domestic emissions trading system and others are regulated by other instruments (e.g. taxation), the commission should examine the kind of demands this would make on the quota system and on other instruments. Assessment of which sectors to include in the quota system should also be based on analyses of how sectors not included in the system might make use of the flexible implementation mechanisms.

Criteria for the allocation of emission quotas will be a central issue in the commission's work. Several alternative allocation criteria should be evaluated, including auctions and allocation of quotas free of charge. The commission is also requested to consider whether a system can be established that would to a great extent ensure equal treatment of the enterprises involved. The method of allocation should also be considered in light of international trade regulations, regulations on state support under the EEA Agreement and national competition legislation.

The Storting has decided that emissions subject to regulation through quotas should not be taxed or regulated by the Pollution Control Act. The commission is requested to assess how a quota system should be designed and put into practice in relation to existing legislation, including the Pollution Control Act, and to submit proposals for legal provisions and outline any regulations considered necessary.

The commission is also requested to consider how quotas should be limited in time, and how the emissions trading system can be adjusted to meet more stringent international emission commitments after the current commitment period under the Kyoto Protocol. The system should be compatible with the international flexible implementation mechanisms. The commission should also consider whether various quota banking concepts might affect the workings of the market and the extent to which the authorities can be sure of meeting their commitments. The design of monitoring, control and sanctioning mechanisms will need to be a central issue.

The commission should consider when the system could be introduced and how it could be phased in. The possibilities of utilising the international flexible implementation mechanisms until a quota system can be put in place and while it is being phased in should also be discussed.

The commission is asked to consider the economic consequences of alternative domestic quota systems, including the effects on economic growth, competitiveness, employment, individual industries, regions and income distribution. Regardless of how the commission's proposal for a quota system could affect government revenues, discussion of the economic consequences should be based on the assumption that the total revenues will not be altered. These considerations should be based on a long-term perspective, which takes into account that commitments to reduce emissions of greenhouse gases may become more demanding after 2012 compared with the first commitment period. Budgetary and administrative consequences of the proposals must be assessed.

The commission is asked to present its proposal to the Ministry of the Environment by 31 December 1999.

Members of the commission are:

Chair: Eva Birkeland Adviser, Statistics Norway Members: Øystein Dahle Chairman, Worldwatch Institute Norden Cathrine Hagem Researcher, CICERO (Center for International Climate and Environmental Research, Oslo) Gerd Halmø Director, Statoil Anders Haugestad Judge, Northern Troms District Court Michael Hoel Professor, University of Oslo Nina Bjerkedal Adviser, Ministry of Finance Peer Stiansen Adviser, Ministry of the Environment Bent Fester Sunde Assistant Director General, Ministry of Trade and Industry Ingun Hagesveen Weltzien Adviser, Ministry of Transport and Communication Lars Erik Aamot Adviser, Ministry of Petroleum and Energy

The commission is served by a secretariat staffed by the Ministry of the Environment and the Ministry of Finance and headed by the Ministry of the Environment.

5The Norwegian CO ₂ tax

6

Norwegian greenhouse gas inventories for 1990 and 1996, and projections up to 2010.

This page was last updated May 18th, 1999 by the editors